The ability to use digital technologies to predict, identify and prevent fraudulent behaviour is a big driver in the take-up of digital strategies by modern tax and welfare agencies. Why? Because tax evasion and welfare fraud & error place a huge burden on government budgets. One figure cites them costing 145 of the world’s economies US$3.1 trillion annually.
Digital has the potential to transform this situation by enabling compliance. For example, with the right digital tools and analytical techniques, such as predictive analytics, a tax agency can spot mismatches between a taxpayer’s economic activity and his reported taxable income.
We’re already seeing some digital agencies moving their compliance upstream to detect and address tax evasion, and welfare fraud & error at the point of interaction with the customer. This early detection using deterministic and predictive models will require claimants or taxpayers to provide more information to validate their eligibility to a benefit, tax allowance, or a tax reclaim.
Real-time digital detective work can also stop fraudsters and evaders in their tracks as they carry out a transaction. Are they ‘gaming’ their tax return by trying out different answers? This type of real-time online monitoring is used in the insurance sector to determine whether to move to fulfilment or ask the customer additional questions.
Digital transformation will also see changes in operational processes and new models enabling payments to be put on hold whilst an investigation is carried out. Proven fraudsters and evaders may be subject to heavy fines and penalties and repeated checks in ensuing years.
All of this makes a compelling case for digital. The sophisticated analytics embedded in digital solutions has the potential to turn today’s tax or welfare agency into a digital detective.
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